Strategy-Structure Relationship

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Strategy-Structure Relationship

There is a close relationship between an organisation’s strategy and its structure. The understanding of this relationship is important so that in implementing the strategy, the organisation structure is designed according to the needs of the strategy. The relationship between strategy and structure can be thought in terms of utilising structure -for strategy  Strategy-Structure Relationshipimplementation because the structure is a means to an end and not an end in itself. The master appropriate end is the objectives for which the organisation exists in the first place, as revealed by its strategy.
Without coordination or Relationship between strategy and structure, the most likely outcomes are confusion, misdirection, and splintered efforts within the organisation. Research.evidence also suggests that structure follows strategy. According to Chandler, changes in organisations strategy bring about new administrate problems which, in turn, require a newly refashioned structure if the new strategy is to be successfully implemented. Chandler has found structure tends to follow the growth strategy of the organisation but not until inefficiency and internal operating problems provoke a structural adjustment. Thus organisational actions proceed in a particular sequence: new strategy creation, an emergence of new administrative problems, a decline in portability and performance, a shift to a more appropriate organisation structure, then recovery to improved strategy execution and more profit and performance. However, this sequence can be broken if suitable organisation structure is conceived at the starting point of strategy implementation.
The relationship between strategy and structure, however, should not be viewed merely as one-way traffic, rather it should be viewed as two-way traffic. On the one hand, the structure should be according to the need the strategy so that it is implemented effectively. On the other hand, the structure of the organisation may play a critical role in influencing its choice of strategy. Recognition of this two-way interaction between strategy and structure is crucial for a complete understanding of the criteria which underlie structural design. It becomes obvious that a top management perspective in structural design is necessary when one understands that such a design is a result of the overall strategy, and the success of the strategy is also dependent on that design. The interdependence of structure with strategy can be summarised by quoting Cannon who has derived from his long experience of his consulting firms in devising strategies and organising companies. He observes:
“The experience of McKinsey supports the view that neither strategy nor structure can be determined independently of the other. If the structure cannot stand alone without a strategy, it is equally true that strategy can rarely succeed without an appropriate structure. In almost every kind of large-scale enterprise, examples can be found where well-conceived strategic plans were thwarted by an organisation structure that delayed the execution of the plans or gave priority to the wrong set of considerations
… good structure is inseparably linked to strategy…,”

Relating Structure to Strategy

The close association of structure with strategy suggests that the organisation should relate its structure to its strategy. It should design the structure according to the needs of the strategy for- its effective implementation. Without coordination between strategy and structure, the most likely outcomes are confusion misdirection and splintered efforts within the organisation. The structure is a means to implement a particular strategy and, therefore, the good structure is one which best fits with the strategy. In evaluating whether the structure is designed properly to meet the needs of the strategy, two questions can be posed:
1. What functions and activities should be performed for the success of the strategy?
2. Is structure adaptable to the pressure of the external environment?
The answer to these two questions should point squarely at the functions essential to strategic success. However, in applying the test of the consistence of strategy and structure, the strategist
frequently meets three difficult. First, as he attempts to relate structure to strategy, he may find the strategy unclear, emerging. The basic question that should be put for an answer before
diagnosing the structural adequacy is: how definite is the strategy? If the answer to this question is uncertain, how does a manager test the adequacy of his organisation structure?
Therefore, if the strategy is precise, clear and definite, the adequacy of organisation structure can be tested easily.
The second difficulty results from the fact that symptoms of organisational malfunctions are not always explicit, unlike the physical object. Things are to be interpreted on the basis of various qualitative factors which may become subjective. It is a common human tendency to cover up unpleasant things and organisational situations fall in this category. Therefore, the strategist has to build up his information system in such a way that he is able to monitor organisational adequacy.
The third problem in applying the test of adequacy is that malfunctioning symptoms have multiple causes. Many of external factors may cause malfunctioning in the organisation and not the structure itself. For example, if the profit is down because of increased competition and consequence -lower price realisation, the correction will be required in strategic posture and the organisation should be analysed in the context of both internal _ well as external factors to pinpoint the exact nature of the problem and consequently the remedial action. These problems must be kept in mind -while relating structure to strategy.